How Political Environment Affect Business

Businesses are affected by the political environment in a country because at times they might suffer a loss. Government actions can result to change in the political environment at all levels, from the federal level to the local level.

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Therefore, businesses must be fully prepared from the fallouts in government politics.

In this article, you will be informed on several factors on how political environment affect business. Take note that a business is affected by the political environment, either negatively or positively that will depend on the current situation of a country. Here are the four factors for you.

Impact in the Country’s Economy

The political environment existing in a country primarily affects the economic environment. As a result, the economic environment also affects the business organization’s performance. Like for example, in the United States, a considerable number of differences can be seen in Republican and Democratic policies. The two parties have quite been opposing for years regarding their rules and regulations. This often has implications for government spending and taxes, which may in turn affect the stable economy and business of a country. With higher level of spending in the government body, it may stimulate the economy as well.

Change in Government Regulation

Additionally, the change in government regulation is another known factor that affects business. With the constant change in rules and regulations, this can relatively have an effect in all businesses. The accounting scandals in the 21st century, for example, has led the “Securities and Exchange Commission in the United States” to be more focused in corporate compliance. The government has introduced the Oxley-Sarbanes compliance in 2002, as a response on the social environment that calls for public companies to be more responsible.

Political Stability

Apart from it, a lack in political stability may in particular affect the business that operates internationally. In any country, a hostile takeover may overthrow a government that could also affect the business. This can lead to looting and rioting as they in turn will become general disorders of the society. These may all disrupt the operation of a business, such disruption has occurred in Sri Lanka which went through a civil war. In Syria and Egypt, they have been subjected to disturbances as their citizens agitate for their own rights.

Mitigation of Risks

Risks are quite common in businesses; however, one way to eliminate risk is to buy a political insurance. This type of insurance can mitigate the risk exposure of a business which comes as the result of political instability. Indices have been provided on the organization’s risk exposure in some countries. For example, an economic freedom has its index that rank countries on how merely political interference give a great impact in a country’s business decision.